Kathmandu Upatyaka Khanepani Limited (KUKL) currently uses 35 surface and 57 groundwater sources to supply water for Nepal's capital, Kathmandu. It is necessary to understand if the Melamchi Water Supply Project (MWSP) can assist lean period water supply by indirectly increasing groundwater storage, through diverting excess water supply to groundwater recharge zones. The current study analyzed long-term groundwater depletion to assess available groundwater storage, followed by assessment of groundwater balance for the Kathmandu Valley. Results show that total groundwater extraction for Kathmandu was 69.44 million cubic meters (MCM) and drawdown of the groundwater surface was 15–20 m since the construction of wells in 1984/85, indicating substantial overexploitation. Results indicate that the ongoing unmet demand of 170 MCM/year can be easily satisfied if groundwater storage is recharged effectively, as underground water storage potential is 246 MCM/year due to a groundwater depletion rate of 2–10 m. From results, it is evident that that the timely implementation of the MWSP can help ease ongoing water stress and aid in reversing the damage caused to groundwater storage. In the long run, MWSP can supply water and recharge groundwater during monsoon periods, thus improving the quality of life and socio-economic status in Kathmandu.